FRM® glossary: F
10 terms beginning with F.
- Factor model
- A model that explains asset returns by their exposures to a small number of common risk factors. It splits return into factor-driven and specific parts. Where it appears →
- Fat tails
- A distribution in which extreme outcomes are more likely than the normal distribution would imply. Financial returns commonly show it, so normal-based models understate tail risk. Where it appears →
- Forward contract
- An agreement to buy or sell an asset at a set price on a future date, traded over the counter. Nothing is paid up front, so it carries counterparty risk. Where it appears →
- Forward rate
- An interest rate for a future period implied by today's spot rates. It is the rate that makes investing for a long period equal to rolling shorter ones. Where it appears →
- Fraud
- Deliberate deception to gain an unfair or unlawful benefit. It can be internal, by staff, or external. Where it appears →
- Frequency and severity
- The two parts of an operational loss model: how many events occur, and how large each one is. Severity is typically heavy-tailed. Where it appears →
- Fundamental review of the trading book
- The Basel reform of market risk capital that moved from VaR to expected shortfall and tightened the line between trading and banking books. It also adds liquidity horizons. Where it appears →
- Funding cost
- The rate a bank pays to raise money, which it passes to business lines through internal pricing. Ignoring it can reward risky, liquidity-draining activity. Where it appears →
- Funding liquidity risk
- The risk that a firm cannot raise cash to meet its payments, or can do so only at a high cost. Reliance on short-term wholesale funding raises it. Where it appears →
- Futures contract
- An exchange-traded standardised forward, marked to market daily with margin. The clearing house stands between the two sides. Where it appears →
Learn these terms in context, with worked examples and questions.
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